You need 4,000 expenses paid out-of-pocket to get the full credit, which is what you want.
The 1098-T shows 4,001 in box 1 and you want that (or at least 4,000 of that ) to be used for a credit.
So that leaves $1 tuition to offset the distribution
Room and board can offset a distribution and you have 5993 for that.
So, 5994 can offset the 7,476 distribution.
That leaves 1,482 taxable distribution.
Tax is not computed on this remaining amount, it is a portion of the earnings only, the basis (your contributions) are not taxed.
Tax on a distribution is calculated on a strange formula involving the eligible expenses used towards the distribution divided by the total distribution times the earnings.
This comes out to be 465
The student needs to claim 465 for you to use 4,000 and get the credit.
Yes, you paid 3,400 out-of-pocket, but you want 4,000 so makes sense that the student is claiming a little ($465) so that you can get a lot ($2,500 credit)
(The amount the student needs to claim is not 600 because part is your contributions to the 529 account which is not taxable)
Pub 970 might explain further
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
